UC-NRLF 


The  A'B'G  of 

COST  ENGINEERING 


DENHAM 


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ROBERT  S.  DENHAM 

Chief  Engineer 

THE  DENHAM  COSTFINDING  COMPANY 

Cleveland 


The  ABC 

Cost  Engineering 

By 
ROBERT  S.  DENHAM 


Author  of 

The  Fundamentals  of  Cost  and  Profit  Calculation 

A  Manual  of  Cost  Engineering  and  Estimating 

The  Science  of  Costfinding 

Practical  Cost  Engineering 

Etc.,  Etc.,  Etc. 


Published  by 

THE  DENHAM  COSTFINDING  COMPANY 

CLEVELAND 


2^ 


Copyrighted  1919,  by 

The  Denham  Costfinding  Company 

Cleveland,  Ohio 


Printed  by 

The  Caxton  Company 

Binding  by 

Forest  City  Bookbinding  Company 

Cleveland 


FOREWORD 

The  author's  object  is  to  make  it  possible 
for  the  busy  executives  of  American  manu- 
facturing enterprises  to  grasp  in  minimum 
time,  at  least  in  outline,  the  principles  and 
advantages  of  the  newest  and  most  practi- 
cable methods  of  determining  the  cost  of 
producing  and  selling  the  products  of  their 
factories. 

It  is  an  unfortunate  fact  that  at  the 
present  time  a  great  majority  of  manu- 
facturers, following  traditional  practices, 
are  confidently  leaning  upon  cost  account- 
ing methods  which  delude  them  into  the 
belief  that  they  are  more  successful  than  is 
actually  the  case.  Not  infrequently  it  is 
made  to  appear  that  their  businesses  are 
being  profitably  conducted  when  as  a 
matter  of  fact  they  are  losing  money. 

It  is  a  demonstrable  fact  that,  once 
financed  and  established,  a  factory  can  be 


415470 


\  ;'';dl&E'A-6'C  OF  COST  ENGINEERING 

operated  at  a  loss  of  ten  per  cent  of  its 
capital  per  year,  and  remain  in  active 
operation  for  fifteen  years.  During  much 
of  this  time  its  directors  may  authorize  and 
pay  dividends,  and  according  to  common 
erroneous  accounting  practices,  it  may 
seem  to  be  reasonably  successful.  Fre- 
quently these  conditions  exist  without  even 
a  suspicion  on  the  part  of  the  managing 
executive,  much  less  his  knowledge. 

The  fact  that  in  normal  pre-war  times 
the  life  of  the  average  manufacturing  con- 
cern was  less  than  fifteen  years,  proves  con- 
clusively that  there  was,  and  is,  something 
radically  wrong  with  the  business  methods 
in  common  use. 

Such  conditions  warrant  the  plainest 
language  on  the  part  of  the  author,  and  his 
statements  deserve  the  most  thoughtful 
consideration  and  investigation  on  the  part 
of  the  reader,  particularly  if  he  is  the 
managing  executive  of  a  factory. 

Every   statement   proffered,    no   matter 
how  exaggerated  it  may  appear  on  its  face, 
6 


THE  A-B-C  OF  COST  ENGINEERING 

is  subject  for  proof.  Each  of  the  facts 
presented  represents  a  phase  of  the  con- 
crete results  of  many  years  of  investigation 
and  practice  on  the  part  of  an  organization 
of  capable  Cost  Engineers  whose  expe- 
rience covers  the  planning,  installation  and 
operation  of  Cost  Engineering  systems  in 
approximately  seven  hundred  factories. 

The  executive  who,  because  he  has  been 
successful,  or  having  studied  the  works  of 
so-called  authorities  on  cost  accounting 
believes  himself  fully  informed,  dismisses 
the  subject  of  Cost  Engineering  without 
careful  thought,  may  thereby  forfeit  his 
opportunity  to  greatly  increase  the  profit- 
ableness of  his  efforts. 

Cost  Engineering  makes  it  possible  to 
increase  profits,  not  so  much  by  advancing 
prices  as  by  revealing  the  weak  points  in 
the  making  and  selling  effort,  so  that  special 
attention  may  be  given  to  strengthening 
them,  thereby  decreasing  existent  unseen 
losses  which  absorb  part  or  all  of  the 
normal  profits. 

7 


THE  A-B-C  OF  COST  ENGINEERING 

The  author  hopes  that  the  executive  who 
reads  this  book  will  derive  both  pleasure 
and  profit  from  its  perusal,  whether  or 
not  he  avails  himself  of  the  services  of 
this  company. 

Respectfully  submitted, 
The  Denham  Costfinding  Company 
By  Robert  S.  Denham,  Chief  Engineer 


CONTENTS 

Page 

Robert  S.  Denham Frontispiece 

Foreword 5 

The  Mysteries  of  Cost 11 

What  Is  a  Cost  System? 19 

Cost  Engineering 29 

Getting  the  Cost  of  the  Order,  or  Lot     ....  41 

Cost  Records  as  a  Basis  for  Estimating .    ...  51 

Auxiliaries  of  the  Cost  System 59 

System  and  Red  Tape 67 

The  Committee-made  "Uniform  Cost  System*' 

and  the  Commercial  Cost  Engineering  Service  77 

Seventeen  Reasons  Why  Denham  Cost  Engi- 
neering Systems  are  Superior  to  All  Others   .  91 

Information  About  Denham  Cost  Engineering 

Service 97 


**Some  ships  sail  East,  and  some  sail  West, 
In  the  selfsame  winds  that  blow; 

'  Tis  the  set  of  the  sails,  and  not  the  gales, 
That  takes  them  ivhere  they  go,** 

— Selected, 


10 


THE  A-B-C  OF  COST  ENGINEERING 

CHAPTER  I 
THE  MYSTERIES  OF  COST 

Mystery  is  always  coexistent  with 
ignorance. 

Nothing  is  mysterious  to  those  who 
know  the  truth. 

There  are  no  mysteries  in  cost  to 
those  who  know  the  principles  of 
Cost  Engineering,  and  how  to  apply 
them. 

Cost  of  production  is  a  mystery  to 
most  manufacturers  because  they 
either  do  not  know  how  to  correctly 
determine  the  cost,  or  have  not 
applied  their  knowledge. 

The  most  unfortunate  condition 
confronting  American  industries  to- 
day is  the  almost  universal  preva- 
lence of  erroneous  teachings  in  regard 
to  methods  of  determining  cost. 

The  great  mystery  of  business  is 
the  so-called  ''Overhead  Expense"  or 
"Burden"  of  cost  accounting. 

11 


THE  A-B-C  OF  COST  ENGINEERING  . 

Thousands  of  pages  have  been 
written  on  the  subject  of  ''Distribu- 
ting the  Overhead  Burden;"  thou- 
sands of  men  have  spent  valuable 
time  in  vain  efforts  to  apply  the 
formulas  presented,  yet  in  the  minds 
of  the  great  majority  of  both  manu- 
facturers and  accountants,  cost,  the 
point  where  expense  ends  and  profit 
begins  in  maniifacture,  is  as  great  a 
mystery  as  ever. 

In  discussion,  with  patrons  or 
competitors,  practically  every  manu- 
facturer expresses  confidence  in  his 
knowledge  of  cost  of  production  in 
his  own  business.  Some  are  confident 
that  they  know.  Others,  pretending 
only,  persistently  proclaim  knowl- 
edge until  they  forget  that  their 
assertion  was  originally  pretense.  A 
few,  more  candid  than  the  rest, 
admit  that  they  are  ignorant  of  cost 
and  base  their  selling  prices  upon 
estimates,  or  on  their  personal  opinion 
of  what  the  traffic  will  bear. 

12 


THE  A-B-C  OF  COST  ENGINEERING 

Why  all  this  wasted  effort,  con- 
fusion of  thought,  and  uncertainty 
of  result? 

Simply  because  traditional  cost 
accounting  depends  upon  the  opin- 
ions of  persons  to  whom  the  funda- 
mental principles  of  expense  and 
expense  distribution  are  unknown. 
In  the  absence  of  knowledge  of  such 
principles  every  man  tried  out  his 
own  theory  according  to  his  oppor- 
tunity. 

The  real  difficulty  antedates  ma- 
chine production. 

There  was  a  time  when  all  work 
was  done  by  hand.  Factories  were 
small,  often  in  a  room  of  the  em- 
ployer's house,  sometimes  in  his 
cellar,  or  in  the  attic  of  his  barn. 
Expenses  were  few.  Practically  all 
that  he  required,  besides  the  shelter, 
was  a  few  crude  benches  and  suffi- 
cient capital  to  provide  materials  and 
pay  for  his  helpers.  The  workmen 
usually  preferred  to  own  the  tools 

13 


THE  A-B-C  OF  COST  ENGINEERING 

with  which  they  worked  and  keep 
them  in  condition. 

The  manufacturer  made  no  serious 
effort  to  determine  cost  beyond  the 
computation  of  the  outlay  for  mate- 
rials and  direct  wages  on  designated 
lots.  To  the  total  of  these  he  added 
a  percentage  large  enough  to  cover 
his  living  expenses  and  a  margin  of 
profit.  His  customers  paid  the  prices 
he  asked,  or  went  without  the  goods. 
There  was  often  no  competition.  If 
any  existed,  it  was  local,  because 
there  were  no  such  transportation 
facilities  as  have  since  been  developed. 
There  were  no  traveling  salesmen. 

With  the  advent  of  machine  pro- 
duction conditions  changed.  The 
employer  was  compelled  to  provide 
the  equipment.  He  faced  the  neces- 
sity for  a  larger  investment,  and 
added  expenses  for  power,  supplies 
and  repairs. 

With  the  application  of  power 
came  the  railroad,  and  the  advan- 

14 


THE  A-B-C  OF  COST  ENGINEERING 

tages  that  it  offered  for  a  larger  field 
of  action.  His  horizon  was  enlarged, 
facilities  were  rapidly  increased,  and 
these  in  turn  developed  greater  prob- 
lems. 

His  old  price-making  formulas  were 
outgrown,  and  required  modification 
to  meet  the  new  conditions.  In 
his  calculation  he  now  recognized 
a  new  factor,  for  want  of  a  better 
term  he  called  it  "overhead  expense." 
The  cost  of  his  product  consisted  of 
three  factors:  materials,  wages,  and 
overhead.  To  the  total  of  these  he 
added  a  margin  for  profit. 

Sometimes  he  included  in  the 
"overhead"  a  salary  for  himself,  often 
he  took  the  position  that  he  got  his 
living  from  the  profits.  Depreciation 
was  rarely  thought  of,  and  more 
rarely  included.  Interest  on  invest- 
ment as  an  item  of  expense  was  never 
dreamed  of.  It  was  taken  for  granted 
that  a  man  in  business  should  furnish 
the  capital  required  to  serve  his  cus- 

15 


THE  A-B-C  OF  COST  ENGINEERING 

tomers  and  carry  their  accounts 
without  remuneration  other  than  the 
profits.  If  he  owned  the  building  in 
which  his  factory  was  located  he 
boasted  that  he  had  no  rent  to  pay, 
and  its  use  was  provided  without 
charge  to  his  customers. 

To  this  day  many  manufacturers 
believe  that  the  inclusion  of  salary 
for  the  owner,  rent  of  the  owned 
building,  depreciation  and  interest 
on  the  investment  is  optional  with 
the  concern.  Many  accountants, 
because  of  ignorance  of  fundamental 
principles,  accept  the  manufacturer's 
viewpoint.  Assuming  that  these  are 
matters  of  opinion  is  responsible  for 
the  lack  of  uniformity  and  the  end- 
less discussions  which  befog  the  prac- 
tice of  cost  accounting. 

To  questions  such  as  these  there 
can  be  but  one  correct  answer.  That 
answer  is  given  in  Cost  Engineering. 
For  the  first  time  in  the  history  of 
manufacture  the  principles  of  expense 

16 


THE  A-B-C  OF  COST  ENGINEERING 

analysis  and  distribution  have  been 
formulated.  They  have  been  tried 
out  in  hundreds  of  factories.  If  a 
single  instance  had  been  found,  or 
could  be  imagined,  where  these  prin- 
ciples did  not  prove  true  there  would 
be  reason  to  believe  that  they  were 
incorrectly  formulated;  but  large  ex- 
perience has  failed  to  find  them 
misstated. 

Cost  accounting  authorities  are 
practically  unanimous  in  their  pre- 
sentation of  the  traditional  theory 
that  the  cost  of  production  consists 
of  the  three  elements:  materials, 
direct  wages,  and  "overhead."  They 
agree  as  to  charges  for  materials  and 
direct  wages,  but  indulge  in  endless 
and  unconvincing  discussions  as  to 
methods  of  distributing  the  "over- 
head." 

The  mystery  still  remains  unsolved 
and  so  long  as  accountants  create  the 
"overhead"  just  so  long  will  it  remain 
unsolved. 

17 


THE  A-B-C  OF  COST  ENGINEERING 

The  whole  theory  of  ''overhead 
expense"  is  wrong.  There  are  no 
"overhead"  expenses  in  manufacture. 
The  ''overhead"  expense  account  is 
the  cesspool  of  business.  It  is  the 
catch-all  for  every  item  that  the 
accountant  does  not  know  how  to 
properly  charge  to  the  product.  That 
"does  not  know''  spells  ignorance.  The 
extent  of  the  "overhead"  account  in 
a  cost  accounting  system  indicates 
the  extent  to  which  the  accountant  is 
ignorant  of  correct  methods  of  ex- 
pense distribution. 

Mystery  and  ignorance  are  always 
coexistent.  Learn  the  truth  and 
mystery  will  disappear.  There  are 
no  mysteries  in  cost  to  those  who 
understand  the  principles  of  Cost 
Engineering  and  know  how  to  apply 
them. 


18 


THE  A-B-C  OF  COST  ENGINEERING 

CHAPTER  II 
WHAT  IS  A  COST  SYSTEM? 

What  is  a  Cost  System? 

Every  man  engaged  in  manufac- 
ture is  confident  that  he  can  answer 
this  question  inteUigently,  but  aside 
from  the  irrelevant  reply,  ''A  Cost 
System  is  a  system  for  finding  the 
cost  of  production,"  it  is  not  likely 
that  two  men  out  of  a  thousand 
would  agree. 

At  the  same  time  practically  every 
one  of  these  men  would  confidently 
express  the  opinion  that  if  he  had  the 
necessary  time,  and  set  about  it,  he 
could  plan  and  install  a  thoroughly 
accurate  cost  system. 

Thousands  of  men  have  tried  it, 
and  failed.  Accountants,  employed 
specifically  for  this  purpose,  with 
ample  time  and  facilities,  during  long 
periods,  covering  months  and  in 
many  instances  years,   have  failed. 

19 


THE  A-B-C  OF  COST  ENGINEERING 

Both  manufacturers  and  accountants 
gave  their  best  effort,  beUeved  for  a 
time  that  they  had  succeeded,  yet 
learned  finally  that  their  creations 
were  rendered  ineffective  as  soon  as 
radically  altered  conditions  affected 
the  business. 

No  two  factories  are  alike.  The 
conditions  in  each  differ  because  of 
differences  in  personnel,  manage- 
ment, methods  of  production  and 
conditions  of  distribution.  A  system 
that  seems  practical  for  one  factory 
will  prove  impractical  in  another 
which,  to  the  casual  observer,  ap- 
pears very  similar. 

There  should  be  no  uncertainty  in 
a  cost  system. 

Cost  is  always  definite. 

Two  systems  designed  for  the 
determination  of  cost,  producing  dif- 
ferent results  with  the  same  factors, 
cannot  both  be  right.  One  may  be 
right  and  the  other  wrong,  or  both 
may  be  wrong. 

20 


THE  A-B-C  OF  COST  ENGINEERING 

Results  must  be  provable. 

According  to  the  recognized  author- 
ities upon  the  subject  of  cost  account- 
ing, a  cost  system  is  an  established 
clerical  routine  whereby  records  are 
kept  and  each  order,  or  lot  of 
product,  charged  directly  with  the 
materials  required  for  its  production, 
with  the  wages  of  the  workers  en- 
gaged directly  in  its  production,  and 
a  share  of  the  "overhead  burden," 
which  supposedly  includes  all  of  the 
other  expenses  involved  in  the  opera- 
tion of  the  factory. 

In  more  than  nine-tenths  of  the 
cost  accounting  systems  in  use,  the 
"overhead"  is  distributed  to  the 
factory  orders  on  the  basis  of  direct 
wages.  In  a  relatively  small  propor- 
tion the  expenditures  for  materials 
and  direct  wages  are  combined  to 
determine  the  so-called  "prime  cost" 
which  is  used  as  a  basis  for  the  dis- 
tribution. In  still  fewer  instances  the 
overhead  is  averaged  over  estimated 

21 


THE  A-B-C  OF  COST  ENGINEERING 

productive  hours  of  machines.  In 
these  cases  the  result  is  found  by 
combining  the  expenditures  for  mate- 
rials and  direct  wages  with  the  pre- 
determined machine  hour  rate  for 
such  hours  as  were  required. 

The  three  methods  cited  in  the  fore- 
going paragraph  comprise  practically 
the  range  of  methods  offered  in  the 
books  on  cost  accounting.  They  are 
constantly  referred  to  in  the  current 
literature  of  the  accounting  profes- 
sion. Accountants  engaged  in  estab- 
lishing cost  systems  are  advised  to 
choose  the  method  in  their  opinion 
most  practicable  for  the  case  in  hand. 

In  rare  instances,  as  in  the  case  of 
cement  factories,  or  others  making  a 
single  item  measurable  by  a  single 
unit,  as  the  barrel,  such  a  system 
might  prove  practicable.  But  in 
factories  making  product  in  any 
variety,  or  different  sizes  of  the  same 
article,  these  methods  will  be  found 
grossly  inaccurate.    The  greater  the 

22 


THE  A-B-C  OF  COST  ENGINEERING 

variety  the  less  likely  are  the  results 
to  be  dependable. 

If  it  could  be  shown  that  the 
expenses  of  operating  the  factory, 
aside  from  the  direct  wages,  were 
involved  in  the  various  processes  in 
the  same  proportion  as  the  rates  of 
wages  paid,  there  would  be  some 
excuse  for  the  theories  advanced. 

If  it  could  be  shown  that  the 
expenses  of  materials  had  any  rela- 
tion to  the  expenses  involved  in  the 
processes,  materials  might  be  said  to 
constitute  a  basis  for  the  distribution 
of  the  overhead  expenses. 

Examination  of  the  expenses  of 
processing  operations  will  reveal  to 
the  casual  observer  that  there  is  not 
a  single  expense  item  which  has  any 
direct  relation  either  to  the  wages 
paid  or  to  the  expenditure  for  mate- 
rials used.  There  is  not  a  single  item 
of  operating  expense  that  increases 
proportionately  with  the  increase  of 
wages,  or  decreases  with  a  decrease 

23 


THE  A-B-C  OF  COST  ENGINEERING 

in  wages.  Not  one  of  the  items  of 
expense  involved  in  the  operation  of 
manufacturing  processes  increases  as 
the  price  of  materials  advances  or  de- 
creases proportionately  as  the  prices 
fall. 

It  is  evident  therefore  that  none  of 
these  methods  can  be  depended  upon 
as  a  means  of  determining  the  cost  of 
production  in  a  factory  where  there 
are  many  processes,  applied  to  dif- 
ferent kinds  of  materials,  in  the  pro- 
duction of  articles  which  differ  in 
size  or  character. 

To  be  practicable,  the  results  of  a 
cost  system  must  be  provable. 

Personal  opinions  as  to  cost,  or 
methods  of  determining  cost,  are 
worthless  unless  they  can  be  proven 
correct. 

Cost  can  be  determined  in  a  man- 
ner that  will  admit  of  absolute  proof 
of  every  step  in  the  process.  The  cost 
of  each  individual  item,  or  lot,  can  be 
found,  regardless  of  the  variety  of 

24 


THE  A-B-C  OF  COST  ENGINEERING 

items  produced  within  a  single  fac- 
tory, or  the  use  of  machines  and 
processes  interchangeably  as  required. 

The  practicable  method  will  be 
explained  in  another  chapter  under 
the  caption  "Cost  Engineering." 

A  practicable  cost  system  is  an  es- 
tablished clerical  routine  through  which 
records  of  factory  activities  and  the 
expenses  involved  in  the  operation  of 
the  processes  are  so  analyzed^  classi- 
fied and  applied  that  every  item  of 
product  will  be  charged  with  exactly 
the  share  of  the  particularized  expenses 
that  were  required  for  its  production, 
no  more,  arid  no  less. 

In  a  practicable  cost  system  no 
expense  can  be  considered  as  basic, 
and  there  can  be  no  problem  of 
"overhead  distribution." 

While  detailed  description  of  Cost 
Engineering  methods  will  comprise  a 
separate  chapter,  the  author  wishes 
here  to  impress  the  reader  with  these 
important  truths: 

25 


THE  A-B-C  OF  COST  ENGINEERING 

1.  Any  system  that  deserves  the 
confidence  of  the  user  should  be 
provable. 

2.  Any  system  the  results  of  which 
are  materially  influenced  by  the  per- 
sonal opinion  of  its  author  or  user  is 
worthless. 

3.  Any  system  which  depends  for 
results  upon  the  distribution  of  an 
"overhead,''  "burden/'  or  "general 
expense"  account  is  erroneous  and 
misleading. 

4.  Any  system  in  which  one  or  more 
expenses  are  assumed  to  constitute 
a  basis  for  the  distribution  of  other 
expenses  will  not  stand  the  test  of 
analysis. 

5.  There  is  not  a  single  expense, 
much  less  a  mass  of  expenses,  that 
increases  proportionately  as  wages 
are  advanced,  or  decreases  as  wages 
are  reduced. 

6.  There  is  not  a  single  operating 
expense  that  has  any  definite  relation 

26 


THE  A-B-C  OF  COST  ENGINEERING 

to  the  cost  of  the  materials  of  which 
the  product  is  composed. 

7.  Neither  direct  labor,  nor  mate- 
rial, nor  both  combined,  will  serve  as 
a  basis  for  the  distribution  of  any  or 
all  of  the  operating  expenses. 

8.  The  fact  that  all  expenses  have 
been  considered  and  included  in  the 
cost  is  not  an  evidence  that  the  cost 
of  individual  orders  or  items  has  been 
correctly  determined. 

9.  Neither  the  fact  that  a  certain 
method  has  been  used  for  a  long  term 
of  years,  nor  that  during  the  period 
of  its  use  the  concern  has  enlarged 
and  paid  dividends,  can  be  admitted 
as  evidence  that  either  the  methods 
or  the  results  are  correct. 


27 


The  day  of  haphazard  and  makeshift 
methods  has  passed.  The  manufacturer  who 
wishes  to  stay  in  business  must  fix  his  prices 
upon  provable  facts,  otherwise  he  is  not 
deserving  of  the  confidence  of  his  customers 
or  of  the  community. 

Selling  prices  are  fairest  when  they  include 
not  only  a  reasonable  profit  above  cost  of 
manufacture,  but  the  elements  of  Efficiency 
of  production  and  Management  which  assure 
the  buyer  that  the  cost  has  not  been  inflated 
through  careless  or  extravagant  business 
methods. 


28 


THE  A-B-C  OF  COST  ENGINEERING 

CHAPTER  III 
COST  ENGINEERING 

Cost  Engineering  is  the  science  of 
costfinding  by  analysis  of  the  proces- 
ses and  expenses  of  production,  and 
the  charging  of  particularized  ex- 
pense factors,  through  process  unit 
rates,  in  the  exact  ratio  of  utilization. 

The  objects  of  Cost  Engineering 
are  five  in  number: 

1.  To  determine  by  analysis  the 
cost  per  unit  of  the  various  processes 
involved  in  the  manufacture  of  prod- 
uct. 

2.  To  determine  in  a  provable 
manner  the  cost  of  each  lot  of  product 
manufactured. 

3.  To  determine  the  relative  profit- 
ableness of  the  several  articles  or  lines 
comprising  the  range  of  product. 

4.  To  show  in  analytical  form  the 
cost  of  each  lot,  that  unprofitable 
items  may  be  isolated  and  studied 

29 


THE  A-B-C  OF  COST  ENGINEERING 

with  a  view  to  changing  methods  of 
production,  specifications,  or  prices, 
so  that  the  sale  of  each  will  yield  a 
fair  profit. 

5.  To  show  the  relative  cost  of 
different  lots  of  the  same  article,  for 
the  purpose  of  revealing  the  most 
economical  methods  of  production, 
as  a  means  of  efficiency  and  economy. 

In  Cost  Engineering  "Cost''  is 
always  considered  as  the  sum  or  total 
of  all  expense  elements  involved  in 
the  production  and  distribution  of 
the  items  on  which  cost  is  being  con- 
sidered up  to  the  moment  at  which 
cost  is  being  determined.  The  ele- 
ments of  cost  are  ''expenses." 

This  is  in  striking  contrast  with 
cost  accounting,  in  which  such  terms 
as ''direct  labor  cost,"  "material  cost," 
"prime  cost,"  "actual  cost,"  "factory 
cost,"  "gross  cost,"  "net  cost,"  etc., 
confuse  and  mystify  to  a  degree  that 
renders  discussion  almost  if  not  quite 
unintelligible. 

30 


THE  A-B-C  OF  COST  ENGINEERING 

To  be  understood,  the  participants 
in  a  discussion  must  use  a  common 
terminology.  In  other  words  they 
must  "speak  the  same  language." 

Cost  accounting  has  never  had  a 
definite  terminology.  Its  terms  mean 
different  things  to  different  individ- 
uals. Practically  no  two  accountants 
would  give  definitions  of  the  impor- 
tant term  "cost"  which  could  be 
harmonized.  Cost  accounting  starts 
with  mystery  and  ends  in  mist. 

Cost  Engineering  has  a  definite 
terminology. 

Cost  Engineering  is  governed  by 
fundamental  principles  as  definite 
and  understandable  as  the  principles 
of  mathematics  or  physics. 

The  application  of  these  principles 
and  their  concomitant  rules  to  the 
factors  of  production  develop  results 
as  definite,  logical,  and  provable  as 
the  results  of  other  mathematical 
calculations. 

31 


THE  A-B-C  OF  COST  ENGINEERING 

Definiteness  is  the  keynote  of  Cost 
Engineering. 

Every  expense  element  is  definite. 
It  is  definite  in  amount  or  it  could  not 
be  recorded.  It  is  definite  in  purpose 
or  it  would  not  be  authorized.  Its 
purpose  is  always  the  procurement  of 
a  definite  service  or  commodity  more 
advantageous  than  the  amount  of 
money  involved,  otherwise  the  ex- 
change would  not  be  made.  The 
advantage  gained  by  the  expenditure 
imparts  a  definite  degree  of  benefit 
wherever  purchased  item  is  utilized. 

Correct  distribution  of  an  expense 
item  demands  that  the  charge  shall 
always  be  made  against  the  product 
benefited,  and  if  more  than  one  item 
or  process  be  benefited  the^^charges 
must  be  in  the  ratio  of  benefit  or 
advantage  conferred. 

In  manufacture,  product  always 
consists  of  definite  materials,  to  which 
have  been  applied  the  time  of  definite 
formative  processes. 

32 


THE  A-B-C  OF  COST  ENGINEERING 

Materials  are  measurable. 

The  expenses  involved  in  the  pur- 
chase, transportation,  storage,  and 
handling  of  materials  can  be  definitely 
determined. 

With  definite  specifications  for  ma- 
terials, definite  information  as  to 
expenses  involved,  there  should  be 
no  question  about  the  possibility  of 
determining  the  cost  of  materials 
required  for  any  given  lot  of  product. 

Processes  are  definite. 

A  capable  engineer  can  in  a  short 
time  make  a  complete  list  of  the 
processes  which  any  given  factory  is 
equipped  to  perform. 

The  expenses  required  for  the 
operation  of  processes  are  definite. 

The  purposes  for  which  the  expend- 
itures are  made  are  definite. 

Expenses  always  have  one  of  two 
qualities:  they  are  either  direct  or 
indirect. 

Direct  expenses  are  items  having  a 
single  beneficiary,  to  which  they  are 

33 


THE  A-B-C  OF  COST  ENGINEERING 

chargeable  in  total.  No  act  of  dis- 
tribution is  required. 

Indirect  expenses  are  items  having 
two  or  more  beneficiaries  to  which 
they  must  be  charged  in  the  ratio  of 
benefit  conferred. 

Indirect  expenses  may  be  grouped 
for  simultaneous  distribution  only 
when  the  beneficiaries  are  identical, 
the  ratio  of  benefit  the  same,  and  their 
benefits  are  measurable  by  a  common 
unit.  (Ignorance  of  this  principle  has 
been  the  most  serious  obstacle  in  the 
path  of  those  who  tried  to  solve  the 
problem  of  "overhead  distribution" 
in  cost  accounting.  Having  violated 
this  principle  practical  distribution 
becomes  impossible.) 

None  of  the  operating  expenses 
have  any  relation  to,  or  are  involved  in, 
the  ratio  of  wages  paid  to  workmen. 

Practically  every  expense  involved 
in  the  operation  of  manufacturing 
processes  has  a  definite  relation  to  the 
element  of  time. 

34 


THE  A-B-C  OF  COST  ENGINEERING 

Rent  is  paid  on  a  time  basis,  or  if 
the  building  is  owned  the  items  of 
depreciation  and  insurance  on  the 
building,  and  interest  and  taxes  on 
the  investment  in  building  and  land 
are  calculated  on  a  time  basis. 

As  between  the  processing  divi- 
sions of  a  factory  the  expenses  of 
providing  the  housing  facilities  are 
calculated  by  the  use  of  the  factors 
of  area  and  time. 

The  expenses  incident  to  the  equip- 
ment investment,  e.  g.  depreciation, 
insurance,  interest  and  taxes,  are  all 
related  to  time.  The  amount  of 
investment  and  the  element  of  time 
are  the  important  factors. 

The  expenses  of  the  power  plant, 
or  for  purchased  mechanical  energy 
are  related  to  time.  Horsepower 
required  for  operating  the  machines 
and  the  time  of  operation  provide 
the  means  of  determining  the  pro- 
portions of  power  expense  chargeable 
to  processing  divisions. 

35 


THE  A-B-C  OF  COST  ENGINEERING 

The  superintendent  supervises  the 
active  time  of  productive  processes, 
while  the  foremen  supervise  the  time 
of  the  individual  employes  whether 
classed  as  productive  or  nonproduc- 
tive. 

Water,  soap,  towels,  and  toilet 
facilities  are  required  for  the  con- 
venience of  every  individual,  during 
the  time  that  he  is  in  the  factory  or 
office.  These  items  are  related  to 
personal  time. 

Supplies  consumed  in  the  operation 
of  the  processes  are  required  practi- 
cally in  proportion  to  the  active 
operating  time. 

Records  of  the  activities  of  manu- 
facturing processes  and  individuals 
require  the  use  of  supplies  relatively 
in  the  proportions  of  the  active  time 
of  the  processes.  Activity,  not  idle- 
ness, creates  the  necessity  for  the 
expenses  of  such  supplies  and  the 
services  of  time-recording  and  cost- 
computing  clerks. 

36 


THE  A-B-C  OF  COST  ENGINEERING 

The  normal  unit  of  time  measure- 
ment is  the  hour. 

The  logical  unit  of  process  meas- 
urement is  the  process  hour. 

The  cost  of  process  hours  will  vary 
with  the  expense  elements  involved 
and  the  number  of  process  hours  over 
which  the  process  expenses  must  be 
averaged  to  get  the  average  cost  of 
the  process  hour. 

The  cost  of  a  process  hour  is  a 
complete  cost.  Every  element  in- 
volved in  the  process  having  been 
included,  there  is  nothing  to  add  or 
subtract. 

The  total  of  the  expenses  involved 
in  a  given  process  during  a  given 
period  of  time,  divided  by  the  charge- 
able (revenue  producing)  hours  of 
that  process  actually  charged  against 
the  production  orders  during  the 
same  period,  determines  the  rate  at 
which  such  hours  must  be  charged 
to  determine  the  cost  of  that  process 
as  applied  to  the  order. 

37 


THE  A-B-C  OF  COST  ENGINEERING 

It  follows  that  the  total  charges 
against  all  production  orders  during 
a  given  period  must  practically  bal- 
ance with  the  total  of  the  expendi- 
tures of  the  same  period.  (These 
totals  are  almost  invariably  within 
one-quarter  of  one  per  cent  of  an 
exact  balance.) 

Wages  may  or  may  not  be  included 
in  the  process  hour  cost  rate,  at  the 
choice  of  the  engineer. 

Wages  comprise  simply  one  ele- 
ment in  cost. 

Wages  have  no  relation  to  the 
total  of  the  process  hour  cost. 

Wages  are  always  related  to  time. 
They  are  computed  on  the  basis  of 
time  worked,  or  pieces  processed  or 
assembled.  Piecework  rates  are  set 
on  a  time  basis. 

Where  no  special  reason  exists  for 
a  separate  consideration  of  wages 
they  should  always  be  included  as 
one  of  the  elements  of  the  process 
hour  cost.   Inclusion  within  the  hour 

38 


THE  A-B-C  OF  COST  ENGINEERING 

rate  materially  reduces  the  clerical 
effort  required  for  the  operation  of 
the  cost  system. 

In  replacing  a  cost  accounting  sys- 
tem, by  the  planning  and  installation 
of  a  Cost  Engineering  system,  it  is 
usual  to  find  that  the  clerical  effort 
is  lessened. 

Cost  Engineering  corrects  all  of  the 
inaccuracies  of  cost  accounting. 

In  Cost  Engineering  there  is  no 
"overhead  expense."  All  expense 
elements  are  definite. 

Cost  Engineering  is  analytical.  It 
analyzes  and  particularizes  where 
cost  accounting  amalgamates  and 
generalizes. 

Cost  Engineering  is  practical  while 
cost  accounting  is  theoretical. 


39 


*' Business  will  not  be  on  a  sound  economic 
basis  until  prices  rise  and  fall  with  costs. 

''The  word  'fair'  in  connection  with  prices 
lacks  virility;  it  not  only  admits  but  invites 
debate;  it  suggests  possibilities  of  variations. 

"A  fair  price  is  a  right  price y  and  the  right 
price  depends  upon  conditions  that  are  sus- 
ceptible to  scientific  investigation. 

''Price  is  fundamentally  a  scientific  propo- 
sition. 

"As  the  problem  of  cost,  which  is  of  first 
and  fundamental  importance,  is  worked  out, 
the  question  of  price  naturally  follows. 

"Whether  a  man  shall  be  permitted  to  add 
little  or  much  to  his  cost  by  way  of  profit,  one 
thing  is  certain,  the  right  price  never  falls 
below  cost.'''  — Arthur  Jerome  Eddy. 


40 


THE  A-B-C  OF  COST  ENGINEERING 

CHAPTER  IV 

GETTING  THE  COST  OF  THE  LOT, 
OR  ORDER 

The  cost  of  the  order,  whether  it 
specifies  a  single  article,  as  a  machine, 
or  a  lot  of  identical  articles,  is  the  chief 
objective  of  Cost  Engineering  effort. 

The  cost  of  the  order  includes  the  ex- 
penditures for  materials,  the  expenses 
of  merchandising  insofar  as  they  apply 
to  the  materials  specified;  the  cost  of 
the  process  units  required;  and,  if  the 
order  is  for  articles  already  sold,  it 
should  include  the  expenses  of  selling. 

Because  the  plan  of  the  system 
must  conform  to  the  particular  con- 
ditions that  exist  in  the  individual 
factory  for  which  it  is  designed,  it  is 
impractical  to  present  the  forms  of  a 
system  in  this  chapter.  An  outline 
of  general  features  however  may  be 
of  practical  use. 

There  are  five  steps  in  the  opera- 
tion of  a  Cost  Engineering  system: 

41 


THE  A-B-C  OF  COST  ENGINEERING 

1.  Making  the  initial  records  of 
materials  and  process  time. 

2.  Recording  chargeable  and  non- 
chargeable  time  of  processes. 

3.  Assembling  the  records  of  ma- 
terials and  process  time  applied  to 
individual  production  orders. 

4.  Distribution  and  summarization 
of  operating  and  selling  expenses. 

5.  Calculating  the  order  cost. 
The  first  three  of  these  steps  are 

daily  routine.  The  first  is  accom- 
plished by  the  persons  in  charge  of 
material  stocks,  and  those  in  direct 
charge  of  processing  units.  The 
second  and  third  are  included  in  the 
duties  of  the  cost  clerk. 

The  fourth  step  is  taken  monthly, 
and  is  usually  included  in  the  duties 
of  the  accountant.  The  time  for  this 
distribution  and  summarization  is 
immediately  after  the  completion  of 
the  trial  balance  of  the  regular 
accounting  system  in  use. 

The  fifth  step  is  taken  immediately 

42 


THE  A-B-C  OF  COST  ENGINEERING 

after  finishing  the  processes  of  the 
production  order.  The  cost  of  each 
order  or  lot  should  be  known  not 
later  than  the  day  following  the 
completion  of  the  work,  so  that  if 
necessary,  or  advisable,  billing  may 
be  done  on  the  basis  of  known  cost. 

In  making  records  of  materials 
chargeable  to  orders  a  requisition 
system  will  be  found  advantageous. 
This  provides  a  double  check  on  the 
materials,  as  one  person  makes  a 
record  to  which  another  attaches  his 
signature  or  initials,  in  confirmation 
of  the  receipt  of  the  specified  items. 

Records  of  process  time  (not  wages) 
are  made  by  the  persons  in  charge  of 
active  processing  units.  The  time 
report  carries  the  data  necessary 
regarding  date,  machine,  operator, 
time  of  operation,  quantity  output,  or 
other  items  as  the  conditions  demand. 

The  record  of  chargeable  and  non- 
chargeable  time,  made  daily  and 
closed  up  monthly,  provides  valuable 

43 


THE  A-B-C  OF  COST  ENGINEERING 

data  for  the  management,  as  well  as 
developing  the  number  of  process 
hours  to  which  the  process  expenses 
are  chargeable. 

The  assembling  of  records  of  mate- 
rials and  time  applied  to  individual 
production  orders,  is  part  of  the  duty 
of  the  cost  clerk.  In  fact,  this  is  the 
chief  duty  of  that  individual.  It  is 
usually  found  advisable  to  tran- 
scribe the  items  from  the  reports  of 
the  operatives  to  the  order  cost 
memorandum,  a  special  form  of 
record,  designed  in  every  case  to 
meet  the  requirements  of  the  factory 
in  which  the  records  are  made.  Other 
methods  of  assembling  this  data  may 
be  used  where  there  is  special  reason 
therefor. 

The  author  feels  that  at  this  point 
he  should  warn  the  reader  against  a 
possible  misunderstanding. 

To  clearly  grasp  an  outline  of 
Cost  Engineering  methods  the  sub- 
ject should  be  approached  with  an 

44 


THE  A-B-C  OF  COST  ENGINEERING 

open  mind,  as  free  as  possible  from 
the  ideas  that  have  been  developed 
through  more  or  less  familiarity  with 
cost  accounting  methods. 

The  reader  must  not  assume  that 
because  the  procedure  of  getting 
initial  data  is  similar  to  that  fre- 
quently used  by  cost  accountants,  it 
follows  that  the  data  is  to  be  treated  in 
the  same  way.  Keeping  his  mind  open 
for  the  purpose  of  getting  the  proper 
perspective  of  the  subject  he  will  be 
better  able  to  grasp  fully  the  ideas 
which  the  author  intends  to  present. 

The  distribution  and  summariza- 
tion of  the  operating  and  selling 
expense  is  the  vital  part  of  the  Cost 
Engineering  system.  For  the  accom- 
plishment of  this  there  are  certain 
definite  fundamental  principles  that 
must  be  thoroughly  understood  and 
rigidly  followed. 

The  user  of  the  cost  system  must 
not  permit  himself  to  be  influenced 
by  a  desire  to  have  the  results  con- 

45 


THE  A.B-C  OF  COST  ENGINEERING 

form  to  his  own  impression  of  what 
they  should  be. 

He  must  remember  that  a  cost 
system  is  not  a  price-making  system. 
Cost  is  a  fact,  the  definite  sum  of 
certain  definite  expense  factors.  The 
cost  system  is  simply  the  plan  and 
means  by  which  the  expense  factors 
are  determined  and  charged.  Selling 
prices  are  purely  arbitrary,  and  while  a 
cost  system  serves  as  a  guide  for  mak- 
ing profitable  selling  prices,  the  cost  is 
to  be  honestly  determined  on  the  basis 
of  facts.  The  cost  remains  the  same 
regardless  of  price.  Giving  the  product 
away  has  no  influence  on  the  cost. 

Each  expense  element  must  be  so 
applied  that  each  process  will  be 
charged  with  the  proportion  which, 
by  measurement,  represents  the  pro- 
portion of  the  advantage  or  benefit 
accruing  from  the  expenditure. 

That  this  may  be  properly  accom- 
plished the  accountant  should  be 
thoroughly  instructed  by  a  compe- 

46 


THE  A-B-C  OF  COST  ENGINEERING 

tent  and  experienced  cost  engineer. 

Too  many  accountants,  because  of 
the  latitude  permitted  in  cost  ac- 
counting practice,  think  that  they 
are  competent  to  pass  judgment  as 
to  where  certain  expenses  should  be 
apphed.  A  desire  to  please  the  ''boss" 
by  making  unprofitable  items  appear 
profitable,  adds  to  the  temptation. 
Even  the  boss  himself  sometimes 
yields  to  the  temptation  to  hide  ineffi- 
ciencies by  influencing  the  results. 

Any  deviation  from  the  positive 
application  of  principles  and  rules  is 
bound  to  be  reflected  in  the  results. 
One  cent  per  unit  improperly  applied 
in  the  summarization  destroys  the 
accuracy  of  the  result.  Where  a 
cent  is  omitted  the  goods  may  be 
priced  too  low,  attracting  sales  at  a 
loss  of  normal  profits.  The  amount 
of  expense  being  definite  in  total  the 
omission  at  one  point  places  an  added 
burden  at  another,  with  the  result  of 
hindering  sales  of  profitable  business. 

47 


THE  A-B-C  OF  COST  ENGINEERING 

The  manufacturer  may  give  away 
his  product,  or  his  profits,  and  enjoy 
the  reward  of  the  philanthropist,  but 
if  he  juggles  the  figures  of  his  cost 
system,  he  is  on  a  par  with  the  man 
who  arbitrarily  changes  the  figures 
in  a  mathematical  problem,  and  pro- 
claims himself  a  fool. 

Finally,  with  records  of  items  of 
materials  charged  to  production 
orders  at  cost  (not  purchase  price, 
for  cost  includes  the  expenses  in- 
volved in  transportation,  investment 
and  handling  merchandise) ;  with  the 
definite  time  of  factory  processes 
charged  at  definite,  proven  cost  rates; 
and  with  the  expenses  of  selling 
included  where  goods  are  already 
sold,  the  total  cost  of  the  production 
order  is  found  by  simply  adding 
together  the  items  involved. 

There  is  nothing  to  add  to  the  cost 
except  profit.  There  is  no  mysterious 
"overhead  burden,"  no  element  of 
"a  percentage  for  contingencies." 

48 


THE  A-B-C  OF  COST  ENGINEERING 

Cost  found  under  the  Cost  Engi- 
neering methods  provides  for  the 
replacement  of  equipment  worn  out 
in  the  service  of  the  customers.  It 
provides  for  replacements  made  neces- 
sary by  new  inventions  and  the 
inutility  of  machines,  caused  by 
changes  in  the  character  of  the  out- 
put. It  provides,  before  profit  is  cal- 
culated, for  payment  to  the  stock- 
holders, of  interest  on  the  money 
borrowed  from  them  for  the  conduct 
of  the  business,  the  evidence  of  which 
is  the  stock  certificate. 

Cost  Engineering  in  its  entirety  is 
a  symmetrical  structure,  balanced  in 
every  part.  It  requires  the  reader  to 
take  nothing  for  granted,  but  de- 
mands proof  at  every  step.  Its  find- 
ings will  prove  as  accurate  as  the 
work  of  the  persons  entrusted  with 
its  operation.  Cost  Engineering  has 
made  costfinding  practically  an  exact 
science. 


49 


The  source  of  knowledge  is  experience. 

Experience  is  of  two  kinds — our  own,  and 
that  of  others. 

Knowledge  gained  from  our  own  experience 
is  most  expensive,  that  gained  from  others 
most  economical. 

Stupidity  is  still  the  big  factor  in  retarding 
the  progress  of  the  human  race. 

Study!  Reason!  Act! 


50 


THE  A-B-C  OF  COST  ENGINEERING 

CHAPTER  V 

COST  RECORDS  AS  A  BASIS 
FOR  ESTIMATING 

In  the  preceding  chapters  the 
reader  has  been  shown  the  necessity 
for  discarding  old  and  adopting  new 
methods;  a  comparison  of  the  cost 
accounting  fallacy  with  cost  engi- 
neering practicability ;  how  all  expense 
factors  are  related  to  the  time  ele- 
ment, and  the  modus  operandi  of 
Cost  Engineering. 

He  has  been  shown  that  cost  is  the 
result  of  conditions  and  can  be 
influenced  only  by  changing  condi- 
tions, not  by  schemes  of  figuring; 
that  when  production  of  an  item  is 
once  accomplished,  no  influence  under 
the  sun  can  change  the  amount  of 
its  cost. 

We  have  no  means  of  knowing  the 
future  except  by  predicting  its  proba- 
bilities upon  the  past.  We  know  that 
records  of  the  past  are  safer  than 

51 


THE  A-B-C  OF  COST  ENGINEERING 

recollections  of  the  past;  that  compi- 
lations of  recorded  data  are  a  safer 
guide  than  confused  mental  impres- 
sions and  their  resultant  conclusions; 
that  while  the  man  who  has  suffered 
or  lost  through  moral  or  economic 
weaknesses  in  the  past  may  feel  sure 
that  he  will  do  radically  different  in 
the  future,  experience  proves  that 
actual  changes  are  slow.  In  a  factory 
organization  which  has  become  in- 
efficient through  lax  methods,  the 
change  is  slower.  One  man  may  make 
a  strong  resolve  to  change  his  habits 
and  develop  a  noticeable  change  at 
once.  But  an  effort  to  synchronize 
a  hundred  minds  so  that  they  will 
act  in  unison,  in  a  manner  different 
from  their  custom,  is  a  slow  and 
laborious  task. 

These  things  being  true,  records 
being  used  to  prove  their  truth,  we 
find  it  safe  to  assume  that  a  body  of 
people  engaged  in  the  manufacture 
of    definite    items    of    product    will, 

52 


THE  A-B-C  OF  COST  ENGINEERING 

under  the  same  conditions  of  equip- 
ment and  supervision,  work  next 
week  at  the  same  rates  of  speed  as 
they  worked  last  week;  next  month 
they  will  produce  as  much  in  the 
same  hours  as  they  did  last  month. 
The  average  rate  of  production  per 
hour  for  one  period  of  six  months,  or 
a  year,  will  be  about  the  same  as  for 
another. 

Now,  if  records  are  kept  con- 
tinuously, and  the  average  for  twelve 
months  used  for  one  month;  and  at 
its  close,  the  new  month's  record 
added,  dropping  off  the  twelfth  month 
preceding;  thus  making  a  new  aver- 
age, eleven-twelfths  of  the  data  being 
the  same  as  in  the  previously  used 
average,  there  can  be  little  change  in 
result.  The  only  influence  for  change 
will  be  the  difference  between  the 
data  of  the  month  added  and  that  of 
the  month  omitted. 

Output  records  will  show  even  less 
variations.     Machines  are  driven  by 

53 


THE  A-B-C  OF  COST  ENGINEERING 

the  same  power,  at  the  same  speed, 
throughout  busy  seasons,  and  dull. 

If,  then,  we  have  known  rates  of 
output  per  hour  for  the  various  proc- 
esses, under  the  circumstances  and 
conditions  which  prevail  in  a  given 
factory;  and  also  have  known  cost 
per  hour  of  operation  of  the  same 
processes;  we  have  unquestionably 
the  safest  possible  basis  for  predicting, 
or  estimating,  future  performance 
and  costs. 

It  is  not  safe  for  one  factory  to  use 
the  records  of  another  factory  in 
making  estimates.  The  "atmosphere" 
in  different  factories  varies  greatly. 
One  factory  is  managed  by  an  apa- 
thetic management  and  work  moves 
slowly.  Every  employe  feels  the 
influence  of  lethargy  and  attunes 
himself  to  the  slow  time  of  the  insti- 
tution. In  another  factory,  every- 
thing moves  by  schedules.  They  are 
set  with  the  purpose  of  accomplishing 
results  in  minimum  time.  There  is  in 

54 


THE  A-B-C  OF  COST  ENGINEERING 

this  case  very  little  lost  motion.  The 
employe  never  has  to  ask  for  orders. 
They  are  planned  for  in  advance. 

It  would  be  ridiculous  for  one  of 
these  factories  to  use  either  the  pro- 
duction records  or  the  cost  rates  of 
another.  Slow  time  usually  means 
low  hourly  rates  of  cost,  with  high 
production  cost,  because  compara- 
tively few  pieces  are  finished  in  the 
hour.  Rapid  production,  on  the 
other  hand,  will  probably  influence 
hourly  rates  so  that  they  will  seem 
high,  yet  production  costs  are  likely 
to  be  lower  than  in  the  other  case. 

It  follows  that  the  estimates  of 
cost  should,  whenever  possible,  be 
made  upon  the  basis  of  carefully 
kept  records  of  the  performances  of 
machines  and  people  in  the  factory 
producing  the  articles. 

Under  ordinary  conditions  no  two 
men  make  estimates  that  will  stand 
comparison.    Estimates  in  the  ordi- 

55 


THE  A-B-C  OF  COST  ENGINEERING 

nary  sense  are  purely  advance  guesses, 
as  to  how  much  it  will  cost  to  produce 
a  certain  number  of  items  of  given 
specifications. 

More  or  less  data  are  used  by  some 
estimators.  Others  make  an  out  and 
out  guess  as  to  the  price  that  should 
be  charged,  without  measurements  or 
calculations.  Some  of  these  people 
(and  they  are  usually  men  whose 
work  is  not  checked  for  errors  or 
losses)  boast  that  they  can  tell 
within  one  per  cent  of  what  it  will 
cost  to  make  any  article  within  the 
scope  of  the  processes  the  factory  is 
equipped  to  perform. 

As  a  rule  these  people  stop  esti- 
mating as  soon  as  a  cost  system  has 
been  installed.  They  do  not  agree 
with  the  findings  of  the  system. 
Whenever  they  can,  they  either  pre- 
vent or  delay  the  installation  of  the 
system.  It  is  only  natural  that  they 
should  not  like  to  have  their  guesses 
tested    by    a    mechanically    perfect 

56 


THE  A-B-C  OF  COST  ENGINEERING 

system.  It  is  apt  to  injure  their 
''prestige." 

With  a  Cost  Engineering  System 
such  as  has  been  already  described, 
and  with  complete  production  records 
from  the  factory  divisions,  the  ele- 
ment of  guesswork  is  very  largely 
eliminated  from  the  estimate. 

However  much  we  may  like  to 
think  otherwise,  it  is  unquestionably 
true  that  the  only  safe  measure  of 
the  output  of  any  process  is  the 
average  for  the  factory  or  division. 
We  like  to  think  that  we  have  highly 
efficient  people.  We  may  have  them, 
but  their  effect  is  only  to  raise  the 
average.  The  fact  remains  that  the 
average  output  is  the  measure  of 
capacity. 

Estimating  is  pricemaking.  Price- 
making  is  one  of  the  most  important 
functions  of  management.  The  profit- 
ableness or  unprofitableness  of  the 
business  hinges  largely  upon  the 
selling  prices  being  high  enough  to 

57 


THE  A-B-C  OF  COST  ENGINEERING 

yield  a  satisfactory  profit.  Not  too 
high,  lest  the  business  be  driven  to 
the  competitor.  There  is  a  point 
which  insures  fairness  to  all.  |^^. 

The  cost  system  provides  the  data 
for  estimates  which  will  be  fair,  and, 
when  the  product  has  been  made, 
serve  as  a  test  of  the  correctness  of 
the  work  of  the  estimator. 


58 


THE  A-B-C  OF  COST  ENGINEERING 

CHAPTER  VI 

AUXILIARIES  OF  THE 
COST  SYSTEM 

Two  important  features  that,  while 
not  strictly  designed  for  costfinding 
purposes,  are  recommended  as  auxil- 
iaries to  the  Cost  Engineering  system, 
are  the  Perpetual  Inventories,  and 
Machine  Records. 

These  features  are  established 
simultaneously  with  the  cost  system, 
without  additional  fees,  whenever 
the  client  is  willing  to  authorize  the 
expenditures  for  supplies  and  opera- 
tion. 

There  are  many  manufacturers 
who  have  not  yet  admitted  the  value 
of  the  perpetual  inventory  of  mer- 
chandise, including  both  raw  mate- 
rials and  finished  product. 

Few  manufacturers  would  place 
any  considerable  sum  of  money  in  a 
common  cash  drawer,  and  give  a  key 
to  each  of  his  employes,  on  the  tacit 

59 


THE  A-B-C  OF  COST  ENGINEERING 

understanding  that  he  should  use  it 
only  in  the  interest  of  the  employer. 

Yet,  a  large  proportion  of  manu- 
facturers will,  and  do,  unhesitatingly 
invest  thousands  of  dollars  in  mate- 
rials and  merchandise,  which  is  stored 
in  open  places,  easily  accessible  to 
every  employe,  without  even  appoint- 
ing a  custodian  whose  duty  it  is  to 
safeguard  the  investment. 

The  manufacturer  may  have  abso- 
lute confidence  in  the  honesty  of  his 
employes.  They  may  be  as  honest  as 
he  is,  but  under  such  conditions  he 
places  before  them  the  temptation  to 
help  themselves  to  items  that  they 
would  otherwise  have  to  purchase. 

Little  leakages  may  seem  unim- 
portant, but  the  habit  of  pilfering 
grows  when  no  effort  is  made  to 
check  it,  and  the  confidence  of  the 
employer  in  his  employes  may  be- 
come a  curse  to  them  and  a  source  of 
great  loss  to  himself.  The  perpetual 
inventory  and  requisition  system  are 

60 


THE  A-B-C  OF  COST  ENGINEERING 

comparable  to  the  bank  account  and 
check  book. 

The  perpetual  inventory  does  more 
than  stop  shrinkages.  Properly  con- 
ducted it  will  prevent  shortages,  over- 
stocking, and  encourage  a  disposition 
on  the  part  of  employes  to  recognize 
value  in  material  which  otherwise  is 
frequently  handled  without  consider- 
ation of  the  investment  involved. 

If  the  owner  and  employer  does 
not  place  a  value  on  his  own  property 
it  is  not  likely  that  his  employes  will 
do  better  than  he. 

The  Machine  Record  is  useful  for 
making  comparisons  of  the  perform- 
ances of  various  processing  units  of 
the  same  character.  It  provides 
records  of  output  for  the  guidance  of 
the  estimator.  It  shows  the  relation 
between  output  and  capacity.  The 
clerical  effort  required  to  keep  it  up 
to  date  is  almost  negligible. 

The  man  who  has  never  used  a 
cost  system,  with  its  auxiliary  records, 

61 


THE  A-B-C  OF  COST  ENGINEERING 

cannot  appreciate  how  valuable  they 
may  be.  The  author  believes  that 
hesitation  to  adopt  such  systems  is 
generally  due  to  either  a  disinclina- 
tion to  apply  one's  self  to  the  task  of 
learning  and  practicing  new  methods, 
or  to  the  fear  that  admitting  that  one 
has  something  to  learn  is  an  admis- 
sion of  weakness. 

We  are  creatures  of  habit.  After 
we  have  drilled  our  minds  to  follow 
certain  lines  of  thought  we  get  into 
mental  ruts.  If  one  is  inclined  to 
mental  laziness  the  effort  to  getting 
out  of  the  rut  and  breaking  a  new 
channel  for  his  thought  current  is 
distasteful. 

The  man  who  would  prefer  to  work 
in  the  dark,  rather  than  in  the  light, 
would  be  considered  a  subject  for  a 
lunacy  commission,  yet  there  are 
hundreds  of  men  in  this  country  who 
pose  as  business  men,  who  decline  to 
adopt  advanced  measures  in  the  face 
of    the    indisputable    evidence    pre- 

62 


THE  A-B-C  OF  COST  ENGINEERING 

sented  by  those  who  have  learned 
the  advantages  of  their  adoption. 
The  excuses  they  offer  are  frequently 
ridiculous.    One  says: 

"The  conditions  in  my  factory  are 
so  peculiar  that  it  is  impossible  to 
find  the  cost  of  the  product.  My  own 
judgment  is  my  cost  system." 

Such  a  statement  has  about  as 
much  foundation  as  the  claim  that 
the  rules  of  multiplication  would  not 
apply  to  2x4x15  exactly  as  well  as 
to  9x9x9  because  the  factors  were 
different.  A  cost  system  that  de- 
pends upon  the  judgment,  the  pres- 
ence, or  the  health  of  a  single  indi- 
vidual, is  unsafe.    Another  says: 

"My  product  must  be  sold  at 
prices  which  are  already  established 
by  my  competitors,  so  the  cost  sys- 
tem would  be  useless  to  me." 

This  is  sheer  shortsightedness.  In 
very  few  industries  are  prices  estab- 
lished. There  can  be  no  established 
price  in  industries  whose  product  is 

63 


THE  A-B-C  OF  COST  ENGINEERING 

made  to  the  specifications  of  the 
customer.  Unprofitable  prices  are 
always  subject  to  change.  The  proof 
offered  by  a  practical  cost  system 
provides  the  best  possible  argument 
in  advancing  prices,  as  well  as  a 
means  of  convincing  competitors  that 
changes  are  necessary.   A  third  says : 

"My  old  method  of  cost  accounting 
is  satisfactory  because  it  always 
shows  a  profit  at  the  end  of  the  year." 

This  quotation  means  nothing  to 
the  man  who  knows  that  profit  and 
loss  statements  are  notorious  for 
their  omissions  of  economic  expenses. 
Hundreds  of  concerns  that  are  losing 
money  are  able  to  present  a  statement 
showing  a  profitable  period  by  arbi- 
trarily disregarding  the  elements  of 
depreciation,  interest  on  investment, 
and  not  infrequently  the  item  of  rent. 

It  is  easy  by  such  methods  to  hide  a 
loss  of  ten  per  cent  of  the  invested 
capital  per  year,  and  often  more.  On 
the  basis  of  a  ten  per  cent  loss  the 

64 


THE  A-B-C  OF  COST  ENGINEERING 

concern  would  not  be  insolvent  for 
ten  years.  Insolvency  is  usually 
covered  up  for  a  period  after  it 
occurs,  and  the  bankrupt  concern 
will  usually  show  liabilities  exceeding 
its  assets  by  fifty  per  cent.  A  busi- 
ness whose  accounting  system  is  so 
handled  can  lose  ten  per  cent  per 
year  for  fifteen  years  and  fail,  without 
the  management  knowing  the  true 
cause. 

Accounting  literature  is  so  full  of 
theories  and  personal  opinions,  lack- 
ing the  support  of  fundamental  prin- 
ciples, that  the  accountant  respon- 
sible for  the  conditions  in  such  cases 
can  probably  cite  an  "authority"  for 
every  move  that  he  has  made. 

The  establishing  of  a  thorough 
Cost  Engineering  system,  based  upon 
definite  fundamentals,  and  buttressed 
by  the  auxiliaries  of  perpetual  inven- 
tory, requisition  system,  and  machine 
records,  affords  the  strongest  safe- 
guards against  losses  of  all  kinds. 

65 


''The  greatest  ^present  need  is  an  antidote  for 
the  unwillingness  of  men  to  profit  by  the 
previous  experience  of  others.  It  would  be 
amusing,  were  it  not  so  expensive,  to  watch 
the  gropings  of  many  corporation  officers  for 
methods  to  test  efficiency.  Ignorant  of  funda- 
mental principles,  intolerant  of  outside  sug- 
gestions, unable  to  detect  the  analogy  in  other 
undertakings,  they  repeat  the  expensive  experi- 
ments of  the  past.''  — Charles  DeLano  Hine. 


66 


THE  A-B-C  OF  COST  ENGINEERING 

CHAPTER  VII 
SYSTEM  AND  RED  TAPE 

System  in  business  is  of  com- 
paratively recent  origin.  In  fact  if 
one  is  to  judge  by  the  evidences  that 
have  survived  a  century  he  will  find 
that  orderliness  has  become  a  subject 
for  consideration  almost  within  the 
memory  of  men  now  living. 

Look  at  the  map  of  any  old  city, 
even  on  this  continent,  and  you  will 
find  in  the  irregularity  of  the  streets 
evidences  of  lack  of  system,  or  plan, 
on  the  part  of  the  mentalities  respon- 
sible for  their  arrangement. 

A  lack  of  orderliness  is  character- 
istic of  practically  all  of  the  activities 
of  humanity  a  hundred  years  ago. 
Any  man  in  middle  age  can  recall 
numerous  instances  where  radical 
steps  have  been  taken  to  end  the 
confusion  and  disorderliness  of  rule 
of  thumb  methods. 

Street    numbering    systems    have 

67 


THE  A-B-C  OF  COST  ENGINEERING 

been  changed  in  many  of  the  large 
cities  within  the  memory  of  school 
children.  Standardization  of  time  is 
a  development  of  recent  years, 
brought  about  by  the  necessities  of 
rapid  transportation  schedules. 

A  few  cities  cling  to  their  old  un- 
systematic methods  of  numbering 
streets.  A  few  stubborn  obstruction- 
ists still  refer  to  sun  time  as  ''God's 
time."  A  few  business  houses  still 
use  single  entry  records  of  business 
transactions.  A  few  still  keep  their 
accounts  on  spindles  or  hooks  where 
the  gentle  zephyrs  of  Summer  can 
blow  them  out  of  the  window  and 
clean  the  slate  for  delinquent  debtors. 

These,  and  their  ilk,  are  responsible 
for  much  of  the  prejudice  that  exists 
against  modernization  of  business, 
for  the  characterization  of  all  system- 
atic effort  as  ''red  tape."  Only  the 
unthinking,  however,  listen  and  lose. 

The  cash  register,  the  credit  regis- 
ter, the  adding  machine,  the  mechan- 

68 


THE  A-B-C  OF  COST  ENGINEERING 

ical  calculator,  and  the  cost  system 
have  come  to  stay.  The  systematic 
business  is  the  progressive,  growing, 
profitable  business  today. 

If  you  have  occasion  to  visit  two 
factories,  and  find  one  of  them  housed 
in  a  dark,  dingy  building,  the  yard 
about  it  strewn  with  scrap  and  junk, 
the  manager's  desk  cluttered  with  a 
jumble  of  correspondence;  and  the 
other  housed  in  a  modern,  well-lighted 
building,  with  a  grass  plot  in  front,  a 
yard  free  from  scrap,  an  orderly,  well- 
furnished  office,  a  complete  filing 
system  making  it  possible  for  the 
manager  to  place  his  hand  on  any 
paper  required  without  delay,  while 
his  own  desk  is  free  from  all  papers 
except  such  of  the  current  day's  work 
as  he  still  has  in  hand,  which  would 
you  say  was  the  most  desirable.^ 

If  you  were  to  approach  the  mana- 
ger of  the  disorderly  factory  with  a 
proposition  which  would  help  him  to 
bring    order    out    of    chaos,    which 

69 


THE  A-B-C  OF  COST  ENGINEERING 

would  enable  him  to  greatly  increase 
the  profitableness  of  his  business, 
while  at  the  same  time  relieving  him 
of  much  of  the  detail  and  confusion 
of  his  daily  work,  he  would  probably 
respond  by  telling  you  that  thread- 
bare story  about  the  factory  that 
was  so  busy  trying  to  keep  up  an 
elaborate  system  that  its  personnel 
had  no  time  to  make  product. 

If  you  were  to  refer  to  the  condi- 
tions in  the  more  systematically 
conducted  factory,  he  would  prob- 
ably tell  you  that  his  prosperous 
competitor  was  a  flagrant  ''price- 
cutter,"  whose  only  aim  in  life  was 
to  destroy  competition.  You  would 
however  know  the  truth:  that  sys- 
tematic methods  are  economical 
methods;  that  disorderly  methods 
cost  more  than  all  the  modern  equip- 
ment required  in  any  business. 

No  doubt  some  factories  have  been 
over-systematized.  Some  people  go  to 
extremes  in  everything,  and  every- 

70 


THE  A-B-C  OF  COST  ENGINEERING 

body  goes  to  extremes  in  some  things. 
But  cases  of  over-systematizing  are 
not  nearly  so  numerous  as  the  stories 
would  indicate. 

For  one  factory  that  loses  by  too 
much  system  there  are  a  thousand 
that  lose  by  too  little.  Even  an 
inefficient  system  is  better  than  none. 
It  is  a  mistaken  idea  to  assume  that 
because  somebody  overdid  a  thing, 
that  that  thing  should  be  avoided. 
People  die  from  overeating  as  well  as 
from  starvation,  but  neither  dis- 
courages the  sensible  man  from  the 
use  of  a  normal  amount  of  food. 

If  a  business  is  to  be  successful  it 
must  have  system.  The  better  the 
system  the  greater  the  probability  of 
success.  How  could  a  railroad  be 
operated  without  system.^  How  could 
any  organization  succeed  without 
system  .f^ 

System  is  simply  a  set  of  laws  or 
rules  governing  actions.  System  is 
the    well-planned,    smooth-working, 

71 


THE  A-B-C  OF  COST  ENGINEERING 

clearly-defined  track  which  directs 
applied  energy  toward  the  goal  of 
efficiency. 

He  is  an  unthinking  man  who  con- 
fuses system  and  ''red  tape/'  Red 
tape  is  useless  system — the  curves 
and  grades  that  consume  energy  out 
of  proportion  to  the  result  obtained. 

The  competent  engineer  makes  a 
careful  survey,  and  knowing  defi- 
nitely the  desired  end,  maps  out  the 
route  which  will  get  the  result  with 
the  least  effort.  The  first  cost  of  a 
good  system  may  be  greater,  but  it 
will  prove  more  economical  and 
profitable  in  operation. 

Denham  systems  admit  no  red 
tape.  They  are  built  to  get  definite 
and  essential  information.  They 
succeed  because,  to  our  engineers, 
costfinding  is  an  exact  science.  They 
know  by  special  training  and  experi- 
ence what  information  is  essential, 
and  how  to  obtain  it,  by  the  most 
direct  methods. 

72 


THE  A-B-C  OF  COST  ENGINEERING 

There  is  no  magic  formula  that 
will  find  the  cost  in  all  cases.  There 
is  only  the  plain  facts  that  the  ex- 
penses of  manufacture  are  definite, 
in  amount,  in  purpose,  and  in  bene- 
fit. Product  and  the  operations  of 
production  must  be  analyzed  to 
determine  the  elements  and  propor- 
tions of  the  elements  of  which  they 
are  composed. 

Expenses  must  be  analyzed,  to 
determine  their  amount,  their  pur- 
pose, and  the  proportions  in  which 
the  operations  or  items  of  production 
are  benefited  by  each  expenditure. 
Then  each  must  be  applied  to  the 
proper  item  in  the  exact  proportions. 
Only  thus  can  correct  results  be 
obtained. 

All  of  this  is  governed  by  certain 
fixed  and  fundamental  principles 
which,  although  until  recently  un- 
recognized in  cost  determination,  are 
as  old  as  justice  itself.  When  the 
rules  and  principles  are  known,  the 

73 


THE  A-B-C  OF  COST  ENGINEERING 

results  are  as  definite  and  provable  as 
mathematics.  They  are  mysterious 
only  as  the  unknown  is  mysterious  to 
the  ignorant.  All  things  are  simple 
when  known.  The  better  known  they 
are  the  simpler  they  appear. 

Now,  Mr.  Manufacturer,  isn't  it  a 
fact  that  your  fear  of  red  tape,  your 
excuse  for  not  adopting  systems,  is 
not  so  much  a  disbelief  in  the  use 
of  system  as  it  is  a  disinclination 
to  apply  yourself  to  the  study  of 
new  methods,  so  that  you  may 
adopt  that  system  which  will  most 
efficiently  serve  your  require- 
ments; and,  further,  to  the  fear 
that  the  system  will  show  you  so 
many  weaknesses  in  your  present 
methods  that  you  will  be  forced  to 
change  your  habits  of  thought  and 
action  .f^ 

Mental  laziness  and  ignorance  are 
at  the  bottom  of  most  failures. 
Mental  laziness  begets  ignorance; 
ignorance   begets   fear;   fear   begets 

74 


THE  A-B-C  OF  COST  ENGINEERING 

inaction,  and   inaction   begets  deca- 
dence; the  result  is  failure. 

Knowledge  of  your  business  comes 
through  a  careful  analysis  of  records 
of  production  and  expense.  Face  the 
issue  squarely.  Know,  then  act.  Sys- 
tem properly  applied  is  the  best 
source  of  knowledge  for  the  manu- 
facturer. 


75 


Too  much  censorship  over  individuality 
reduces  it  to  mediocrity^  and  this  is  especially 
true  when  a  brilliant  thought  or  suggestion  is 
passed  upon  by  a  number. 

If  the  idea  is  slightly  modified  by  each,  it 
becomes  commonplace,  weak  and  conven- 
tional, and  is  doomed  to  blend  with  the  great 
mass  of  the  ordinary,  — In  Office. 


76 


THE  A-B-C  OF  COST  ENGINEERING 

CHAPTER  VIII 

THE  COMMITTEE-MADE  ''UNIFORM 
COST  SYSTEM"  AND  THE  COM- 
MERCIAL COST  ENGINEERING 
SERVICE 

Within  the  past  few  years  there 
has  been  a  great  awakening  in  a 
number  of  industries  to  the  impor- 
tance of  knowing  the  cost  of  produc- 
tion. 

The  Federal  Trade  Commission, 
under  the  able  chairmanship  of  Mr. 
Edward  N.  Hurley,  has  done  much 
to  arouse  interest  and  action  in  the 
direction  of  co-operation  among  com- 
petitors in  the  effort  to  establish 
uniform  methods. 

Mr.  Hurley's  effort  was  intended 
to  encourage  the  adoption  between 
competitors,  for  their  own  advan- 
tage, and  the  government  as  an 
interested  spectator,  a  common  lan- 
guage of  business.  He  realized  that 
the  lack  of  a  definite  terminology  of 
business    was    a    serious    drawback. 

77 


THE  A-B-C  OF  COST  ENGINEERING 

Every  man  placed  his  own  interpre- 
tation on  such  words  as  ''cost/' 
"expense,"  "profit,"  etc.  There  was 
no  common  agreement,  therefore  re- 
ports and  financial  statements  lacked 
the  uniformity  of  method  that  made 
them  intelligible,  at  least  in  the 
absence  of  the  maker. 

Mr.  Hurley  in  his  book  "The 
Awakening  of  Business,"  says:  "Men 
go  into  business  to  make  money. 
Profit  is  the  difference  between  cost 
and  selling  price.  Goods  cannot  be 
properly  priced  unless  the  cost  is 
known.  The  lack  of  an  adequate 
cost  system  in  a  factory  is  like  the 
lack  of  a  compass  on  a  ship.  It  makes 
it  impossible  to  direct  business  intel- 
ligently and  scientifically.  At  the 
present  time  it  is  estimated  that 
ninety  per  cent  of  the  manufac- 
turers of  the  United  States  are  pric- 
ing their  goods  arbitrarily;  either 
upon  a  basis  which  will  get  rid  of  the 
goods   as   soon   as   they   have   been 

78 


THE  A-B-C  OF  COST  ENGINEERING 

manufactured  or  upon  the  basis  of 
what  their  competitors  are  charging. 
While  it  is  true  that  supply  and 
demand  are  the  determining  factors 
in  the  price  of  any  particular  goods 
once  they  are  placed  on  the  market, 
cost  is  the  fundamental  factor  to 
which  every  manufacturer  who  ex- 
pects to  remain  permanently  in  busi- 
ness must  return  as  the  only  sound 
basis  upon  which  to  figure  his  prices. 
"The  inadequacy  of  cost  account- 
ing systems  in  American  factories  is 
astonishing.  Many  of  these  systems 
are  worse  than  none  at  all  because 
they  are  misleading.  Some  have 
been  built  up  in  the  manufacturer's 
own  ojQSce  and  applied  by  a  book- 
keeper who  is  not  familiar  with  the 
principles  which  underlie  cost  ac- 
counting. Others  have  been  designed 
by  cost  accountants  who  knew  their 
business  but  who  were  so  handi- 
capped by  the  instructions  of  the 
manufacturer  that  they  could  not  do 

79 


THE  A-B-C  OF  COST  ENGINEERING 

justice    to    themselves    or    to    their 
client.  *  *  *  * 

"Every  article  produced  should 
bear  its  equitable  share  of  all  ex- 
penses, including  overhead  and  sell- 
ing expenses.  There  are  manufac- 
turers whose  line  consists  of,  say, 
six  articles;  on  three  they  are  making 
a  profit  and  on  three  they  are  losing 
money,  but  claim  that  these  three 
articles  help  to  take  care  of  the 
overhead  expense.  This  method  of 
doing  business  is  most  detrimental  to 
healthy  business  conditions.  Fre- 
quently one  of  these  articles  may  be 
the  sole  product  of  an  individual  who 
is  striving  and  struggling  to  exist 
against  a  firm  which  is  placing  the 
same  article  on  the  market  as  a 
means  to  help  take  care  of  its  over- 
head expense.  Surely  this  is  not 
wholesome  competition.  An  ade- 
quate cost  system  would  reveal  this 
unhealthy  condition  and  make  a 
remedy  possible." 

80 


THE  A-B-C  OF  COST  ENGINEERING 

Mr.  Hurley  has  gotten  the  right 
perspective  of  the  situation  in  con- 
nection with  the  worst  phase  of 
American  business.  He  reahzes  the 
inadequacy  of  cost  accounting  meth- 
ods. If  he  were  to  take  the  time 
and  thought  necessary  to  famiharize 
himself  with  the  distinctions  between 
cost  accounting  and  Cost  Engineer- 
ing, contrasting  the  arbitrary  formu- 
las and  uncertain  practices  of  cost 
accountants  with  the  fundamental 
principles  upon  which  Cost  Engineer- 
ing is  based,  his  approval  would 
without  doubt  be  given  to  the  latter. 

At  any  rate  the  big  work  that  Mr. 
Hurley  has  done  in  the  matter  of 
stirring  the  American  manufacturers 
to  a  realization  of  the  need  for  better 
costfinding  methods  is  fully  appre- 
ciated. It  is  to  be  regretted  that 
Mr.  Hurley  could  not  have  remained 
in  the  position  so  vital  to  the  welfare 
of  American  industries. 

Mr.  Hurley  wanted  uniform  meth- 

81 


THE  A-B-C  OF  COST  ENGINEERING 

ods  of  costfinding  adopted  by  manu- 
facturers, particularly  in  the  same 
line,  so  that  comparisons  could 
readily  be  made.  He  referred  to  this 
as  "uniform  cost  systems."  He  knew 
what  he  wanted,  but  again  the  un- 
certainty of  terminology  in  cost 
accounting  caused  misunderstanding. 
The  majority  of  manufacturers  have 
a  wrong  idea  of  what  constitutes  a 
cost  system.  It  is  commonly  sup- 
posed to  mean  a  collection  of  forms, 
ruled  and  printed  alike  for  the  use 
of  all. 

The  "uniform  cost  system"  as  Mr. 
Hurley  intended  it  to  be  understood 
was  not  a  collection  of  forms  identical 
in  design,  but  a  uniform  usage  of 
definite  teachable  fundamental  prin- 
ciples such  as  form  the  basis  of  our 
mathematical  system.  To  expect  all 
manufacturers  to  use  the  same  form 
of  records  in  their  factories  would  be 
as  foolish  as  to  expect  that  all  mathe- 
matical problems  could  be   worked 

82 


THE  A-B-C  OF  COST  ENGINEERING 

out  in  exactly  the  same  arrangement 
of  figures.  It  is  a  strong  indictment 
against  the  knowledge  of  the  subject, 
on  the  part  of  the  average  manufac- 
turer, to  note  the  oflScial  action  that 
has  been  taken  by  many  organizations 
toward  the  appointment  of  commit- 
tees to  design  "uniform  cost  systems/' 
At  the  same  time  it  is  highly  compli- 
mentary to  their  spirit  of  progressive 
action  to  note  how  promptly  they 
took  hold  of  Mr.  Hurley's  suggestion, 
as  they  understood  it. 

Committees  were  appointed  by 
many  organizations  of  manufacturers 
and  some  of  them  have  made  reports, 
offering  so-called  ''cost  systems," 
which  in  some  cases  have  been 
adopted  by  the  body,  and  recom- 
mended for  installation.  Few  of  them 
have  any  real  merit. 

The  home-made  cost  system  is 
generally  a  rank  and  expensive  fail- 
ure, because  its  author  has  neither 
knowledge  of  fundamental  principles 

83 


THE  A-B-C  OF  COST  ENGINEERING 

nor  practical  training  in  their  appli- 
cation. The  committee-made  cost 
system  suffers  from  the  same  cause, 
frequently  more,  because  there  is 
always  opportunity  for  the  individual 
committeeman  to  shift  the  respon- 
sibility for  failure  to  the  shoulders 
of  other  members.  Not  infrequently, 
the  most  ignorant  members  of  the 
craft  are  placed  upon  the  cost  com- 
mittee in  the  hope  that  it  will 
stimulate  them  to  study.  The  suc- 
cessful members  usually  take  the 
attitude  that  they  are  all  right,  but 
that  it  is  their  duty  to  prepare  a 
strong  dose  for  the  other  fellow. 

The  average  business  man  or  manu- 
facturer has  an  inborn  dislike  for  the 
drudgery  of  delving  into  details.  It 
seems  to  him  a  needless  expenditure 
of  energy.  He  prefers  to  accept  super- 
ficial generalities  rather  than  try  to 
assimilate  accurate,  but  detailed,  pre- 
sentations of  the  facts  of  his  business. 

When  an  organization  appoints  a 

84 


THE  A-B-C  OF  COST  ENGINEERING 

committee  and  commissions  it  with 
the  work  of  devising  and  recommend- 
ing a  system  for  cost-finding,  it  can- 
not ehminate  from  the  make-up  of 
that  committee  the  disincHnation  on 
the  part  of  its  members  to  drudgery 
that  has  no  direct  returns,  and  their 
wiUingness  to  adopt  the  impractical, 
in  order  that  they  may  present  a 
report  which  will  indicate  that  the 
committee  has  not  been  idle. 

The  members  of  the  committee, 
being  at  sea  as  to  what  constitutes 
real  cost-finding,  have  a  vague  idea 
that  somehow  or  other  there  ought 
to  be  a  means  by  which  records  of 
product  and  expenses  are  gotten 
together,  so  that  expense  is  applied 
to  product.  As  a  rule  they  console 
themselves  with  the  oft-repeated 
though  erroneous  statement  that 
"any  method  used  is  necessarily 
arbitrary,"  and  consequently  it  re- 
quires simply  an  agreement  upon 
some  one  method,  and  all  will  be  well. 

85 


THE  A-B-C  OF  COST  ENGINEERING 

Inasmuch  as  none  of  the  members 
of  the  committee  have  practical 
knowledge  of  the  principles  of  Cost 
Engineering  there  is  no  means  of 
proving  that  their  conclusions  are 
either  right  or  wrong,  and  the  so- 
called  ''system"  is  readily  adopted. 

Rarely,  if  ever,  does  a  cost  com- 
mittee really  devise  either  methods 
or  forms.  It  usually  meets  about  a 
table  to  consider  a  hodge-podge  of 
printed  forms  and  data  collected  from 
many  sources,  and  undertakes  to 
piece  together  a  group  of  unrelated 
forms  and  methods.  Often  some 
member  with  a  pet  hobby  insists 
upon  the  inclusion  of  his  idea  as  a 
compromise  before  he  will  agree  with 
the  rest  as  to  the  complete  report. 
The  committee  having  agreed,  pre- 
sents its  report  to  the  organization. 

The  fact  that  the  members  of  the 
organization  are  not  better  informed 
as  to  principles  than  was  the  com- 
mittee, renders  it  unlikely  that  there 

86 


THE  A-B-C  OF  COST  ENGINEERING 

will  be  any  serious  objection  to 
adopting  and  recommending  the  sys- 
tem. The  situation  is  not  unhke  the 
instance  of  a  httle  girl  who,  when 
making  strange  marks  on  a  piece  of 
paper,  was  asked  by  her  mother  as  to 
their  purpose.  She  said,  '*I  am  writing 
a  letter  to  Lillie  Smith."  "But,  my 
dear,"  laughed  the  mother,  ''y^^  don't 
know  how  to  write."  "O,  that  doesn't 
matter,  mother,"  she  replied,  "Lillie 
doesn't  know  how  to  read." 

It  is  unfortunate  for  manufac- 
turers that  their  committees  are  so 
ready  to  offer  them  impractical  meth- 
ods, for  the  organization,  generally, 
has  faith  in  its  committee,  and  backs 
it  up  by  its  unqualified  endorsement, 
and  the  laymen  then  assume  that  the 
work  has  been  properly  done,  not 
only  giving  it  full  credit,  but  dis- 
crediting and  opposing  anyone  who 
differs  with  the  conclusions  of  the 
committee,  or  the  recommendations 
of  the  organization. 

87 


THE  A-B-C  OF  COST  ENGINEERING 

Years  afterwards,  when  the  truth 
becomes  known,  the  craft  which  is 
involved  discovers  that  it  has  wasted 
a  great  deal  of  time  and  money  before 
it  learned  the  truth. 

On  the  other  hand,  a  commercially 
exploited  cost-finding  service  is  com- 
pelled, in  order  to  succeed,  to  deliver 
the  goods.  Failure  on  its  part  would 
very  soon  put  its  promoters  out  of 
business.  It  simply  becomes  a  case 
where,  when  a  contract  has  been 
made,  the  contractor  must  make 
good  or  suffer  the  ignominy  of  failure. 
No  such  incentive  to  careful  and 
accurate  work  pushes  the  organiza- 
tion committee  system  to  a  success- 
ful conclusion. 

It  is  not  unreasonable  to  assume 
that  specialists  who  have  devoted 
years  to  intensive  study  and  develop- 
ment of  the  science  of  Cost  Engineer- 
ing are  better  qualified  to  accomplish 
dependable  results  than  committees 
of  men  whose  knowledge  of  the  sub- 

88 


THE  A-B-C  OF  COST  ENGINEERING 

ject  is  less  practical,  however  compe- 
tent or  successful  they  may  be  in 
their  particular  callings. 

To  those  organizations  which  are 
interested  in  a  movement  for  deter- 
mining cost  of  production  in  their 
particular  field,  the  author  suggests 
that  they  appoint  committees,  not 
to  devise  cost  systems,  but  to  investi- 
gate the  merits  of  the  various  meth- 
ods already  in  use,  and  instead  of 
undertaking  to  accomplish  results  by 
taking  the  work  in  their  own  hands 
foster  the  competitive  development 
of  cost-finding  methods  without  ex- 
pense to  their  organization,  through 
demanding  the  best  possible  methods 
which  can  be  devised  and  installed 
by  commercial  concerns. 

To  such  committees  is  offered 
freely  every  available  means  of  in- 
vestigating the  merits  of  Denham 
Cost  Engineering  Service  and  com- 
paring it  with  any  other  which  may 
be  available. 

89 


A  vicious  cause  of  inefficiency  is  indiffer- 
ence to  the  necessity  for  proper  equipment. 
A  director  who  would  not  think  of  demanding 
that  his  workmen  produce  machine  product 
without  first  providing  machines,  will  thought- 
lessly demand  efficient  results  from  a  manager 
while  refusing  to  authorize  the  installation  of 
a  modern  Cost  Engineering  system.  The 
cost  system  is  simply  managerial  equipment, 
without  which  the  manager's  efforts  are  mini- 
mized. 


dO 


THE  A-B-C  OF  COST  ENGINEERING 

CHAPTER  IX 

SEVENTEEN  REASONS  WHY 
DENHAM  COST  ENGINEERING  SYS- 
TEMS ARE  SUPERIOR  TO  ALL 
OTHERS 

1.  Because  Denham  systems  are 
accurate,  comprehensive,  elastic, 
simple,  logical,  provable,  satisfactory 
and  permanent. 

2.  Because  Denham  systems  em- 
brace the  solution  of  the  problem  of 
distributing  the  so-called  ''overhead" 
or  indirect  expenses  of  manufacture. 
No  other  method  does  this. 

3.  Because  Denham  systems  do 
not  depend  upon  personal  opinions 
or  theories,  but  are  the  result  of  the 
intelligent  application  of  definitely 
known  principles,  as  fundamental  as 
the  law  of  gravitation. 

4.  Because  with  a  Denham  system 
one  customer  or  item  cannot  possibly 
be  charged  with  a  cent  of  expense 
properly  chargeable  to  another.    Nor 

91 


THE  A-B-C  OF  COST  ENGINEERING 

can  a  cent  be  omitted.    Justice  is  its 
keynote. 

5.  Because  Denham  systems  are 
the  result  of  applying  common  sense 
to  the  cost  problem.  No  other  meth- 
ods will  stand  the  test  of  logical 
analysis. 

6.  Because  Denham  systems  are 
the  result  of  many  years  of  special- 
ized study  and  experience  in  the 
scientific  application  of  individual 
expenses  through  individual  produc- 
tive operations  to  individual  items 
of  product.  No  other  systems  ap- 
proach them  in  either  accuracy  or 
simplicity. 

7.  Because  in  an  analytical  com- 
parison of  Denham  systems  with  the 
ordinary  type  of  * 'prime  cost  and 
overhead"  or  percentage  system  the 
latter  is  proven  to  be  ridiculous  in 
practice,  and  its  use  due  to  either 
ignorance  or  indifference. 

8.  Because  through  Denham  sys- 
tems cost  can  be  determined   in  a 

92 


THE  A-B-C  OF  COST  ENGINEERING 

provable  manner  with  less  clerical 
effort  than  is  usually  required  to 
operate  the  inferior  misleading  sys- 
tems. 

9.  Because  Denham  systems  are 
installed  by  engineers  who  are  first 
selected  because  of  their  intimate 
knowledge  of  and  thorough  experi- 
ence with  factory  operations  and  prob- 
lems; and  then  trained  carefully  in  the 
application  and  teaching  of  the  funda- 
mental principles  of  cost-finding. 

10.  Because  by  solving  conclusively 
the  problem  of  expense  distribution, 
costfinding  has  become  practically  an 
exact  science.  Denham  systems  leave 
no  opportunity  for  doubt  as  to 
accuracy. 

11.  Because  the  Denham  Cost- 
finding  Company  backs  up  its  service 
to  the  limit.  Not  only  making  a  com- 
plete and  efficient  installation,  but 
keeping  in  touch  with  its  clients  so 
that  new  problems  are  easily  and 
correctly  solved. 

93 


THE  A-B-C  OF  COST  ENGINEERING 

12.  Because  since  the  introduction 
of  labor-saving  and  power-operated 
machines  have  rendered  untenable 
the  theory  that  an  "overhead  burden" 
can  be  distributed  upon  the  basis  of 
either  direct  wages  or  an  hourly 
machine  burden  rate,  Denham  sys- 
tems offer  the  only  logical  means  of 
determining  cost  of  production. 

13.  Because  the  "overhead  ac- 
count" being  the  manifestation  of 
ignorance,  has  no  place  in  modern 
costfinding.  Denham  systems  have 
no  overhead  account  because  Den- 
ham cost  engineers  understand  and 
apply  the  principles  of  expense  dis- 
tribution. 

14.  Because  satisfaction  with  Den- 
ham systems  is  greatest  when  best 
understood,  while  with  percentage 
systems,  analysis  and  reasoning  are 
bound  to  destroy  confidence. 

15.  Because  Denham  systems  are 
the  only  systems  which  meet  every 
requirement  of  modern  manufactur- 

94 


THE  A-B-C  OF  COST  ENGINEERING 

ing  conditions.  No  other  system  will 
determine  accurate  cost  where  a 
variety  of  product  is  produced  with 
varying  proportions  of  widely  dif- 
ferent processes,  and  a  constantly 
fluctuating  state  of  trade. 

16.  Because  Denham  systems,  by 
pointing  out  and  making  easy  the 
elimination  of  waste  and  losses,  prove 
the  greatest  source  of  profits  in  the 
business,  often  putting  a  formerly 
unprofitable  business  upon  a  sound 
and  profitable  basis. 

17.  Because  Denham  systems  fully 
meet  every  claim  of  The  Denham 
Costfinding  Company.  Denham  sys- 
tems make  good. 

Denham  Cost  Engineering  systems 
are  not  ready-made  systems.  Every 
Denham  system  is  a  made-to-order 
system,  designed  for  the  particular 
factory  in  which  it  is  installed. 


95 


The  outlay  for  installation  of  a  Cost  Engi- 
neering system  is  of  small  importance  com- 
pared to  the  greater  profits  that  will  result 
from  its  practical  use. 

The  best  is  always  the  most  economical. 


96 


THE  A-B-C  OF  COST  ENGINEERING 

CHAPTER  X 

INFORMATION   ABOUT   DENHAM 
COST  ENGINEERING  SERVICE 

Denham  Cost  Engineering  Service 
was  established  in  1908.  Installing 
organizations,  under  district  man- 
agers, are  maintained  at  Cleveland, 
Philadelphia  and  Chicago.  All  con- 
tracts for  service  are  made  with  The 
Denham  Costfinding  Company, 
(Ohio)  at  Cleveland. 

Extent  of  Service 

Installations  have  been  made  in 
approximately  seven  hundred  fac- 
tories. The  territory  served  includes 
all  of  the  industrial  states  within  the 
United  States,  and  extends  into 
Canada.  Concerns  operating  under 
Denham  Systems  are  located  in  over 
one  hundred  cities,  from  Boston  to 
San  Francisco. 

.97 


THE  A-B-C  OF  COST  ENGINEERING 


Lines  of  Manufacture  Served 


Account  Registers 

Advertising  Novelties 

Aluminum  Ware 

Automobile  Mountings 

Automobile  Tires 

Baling  Machines 

Bank  Notes 

Bank  Supplies 

Blank  Books 

Book  Binderies 

Brass  Foundries 

Brass  Goods 

Calendars 

Chaplets 

Churns 

Cigar  Boxes 

Cigar  Box  Labels 

Clothing 

Color  Plate  Engraving 

Cooking  Utensils 

Corrugated  Containers 

Corsets 

Cotton  Gloves 

Cutlery 

Display  Cases 

Drug  Labels 

Enameled  Kitchen  Ware 

Envelopes 

Electric  Cut-out  Boxes 

Electric  Dynamos 

Electric  Equipment 

Electric  Signs 

Fibre  Shipping  Cases 

Fireless  Cookers 

Folding  Boxes 

Fruit  Jar  Rings 


Galvanized  Pails  and 
Tubs 

Gas  Ranges 

Generators 

Gloves 

Hardware 

Iron  Foundries 

Ironing  Boards 

Ice  Machines 

Jewelry  Cases 

Kitchen  Equipment 

Knit  Goods 

Leather  Gloves 

Leather  Mittens 

Lithographs 

Loose  Leaf  Devices 

Machine  Composition 

Machinery,  Baling 

Machinery,  Lock  Corner 
Box 

Machinery,  Electric 

Machinery,  Ice 

Machinery,  Malting 

Machinery,  Optical 

Machinery,  Pharma- 
ceutical 

Machinery,  Printing 

Machinery,  Transmis- 
sion 

Manifold  Books 

Metal  Scrap  Balers 

Milk  Cans 

Mittens 

Munitions 

Nickel  Plating 

Office  Supplies 


THE  A-B-C  OF  COST  ENGINEERING 


Optical  Goods 
Paper  Bags 
Paper  Boxes 
Paper  Cans 
Paper  Tubes 
Paper,  Toilet 
Paper,  Waxed 
Photo  Albums 
Photo  Engravings 
Pins 

Piston  Rings 
Printing 
Printing  Presses 
Publishers 
Rubber  Goods 
Rubber  Jar  Rings 
Rubber  Tires 
Sales  Books 
Spectacles 
Stampings 
Stationery 


Steam  Cookers 

Steel  and  Copper  Plate 

Engraving 
Steel  and  Copper  Plate 

Printing 
Steel  Furniture 
Steel  Ranges 
Step  Ladders 
Stoves 

Surveying  Instruments 
Toilet  Paper 
Tools 
Tractors 

Transmission  Machinery 
Varnish 
Varnish  Stains 
Wax  Paper 
Wind  Shields 
Wire 

Wire  Screen  Cloth 
Woodenware 


Period  of  Service 

The  period  through  which  Cost 
Engineering  Service  is  required  varies 
from  three  months  in  small  factories 
to  six  months  or  more  in  large  fac- 
tories, depending  upon  the  problems 
presented  by  the  individual  cases, 
the  class  of  help  employed,  and  the 
degree  of  co-operation  given  to  the 
engineers  doing  the  work. 


99 


THE  A-B-C  OF  COST  ENGINEERING 

The  term,  as  expressed  in  months, 
does  not  mean  either  that  the  service 
is  hmited  to  that  time  according  to 
the  calendar,  or  that  the  engineer 
devotes  his  time  exclusively  to  that 
contract  for  the  period.  For  example: 

In  the  case  of  a  three  months  in- 
stallation period,  the  system  is  to  be 
operated  for  three  months  under  the 
supervision  of  our  engineer.  The 
period  of  planning,  preceding  the 
actual  operation;  and  the  time  re- 
quired to  complete  the  summariza- 
tion of  the  records  and  expenses  for 
the  third  month,  after  the  close  of 
the  third  month's  records,  necessi- 
tates a  total  period  of  approximately 
fifteen  weeks.  A  four,  five,  or  six 
months  installation  will  require  rela- 
tively longer  preliminary  and  com- 
pletion periods,  so  that  the  actual 
time  from  beginning  the  plan  to  the 
finished  records,  on  a  six  months' 
contract  will  be  approximately  seven 
months. 

100 


THE  A-B-c  OF  COST  eng1n:e;ejhng     >^ 

The  engineer's  presence  :  15  'ajc^t; 
required  constantly  for  the  full  time. 
He  is  permitted  to  use  his  discretion 
as  to  the  time  when  he  shall  be 
present,  but  the  Company  guaran- 
tees that  the  service  shall  be  efficient, 
and  the  system  installed  shall  be 
both  practical  and  complete. 

Fees  for  Service 

A  personal  inspection  of  the  fac- 
tory is  necessary  before  a  definite 
quotation  can  be  made.  The  total 
fee  is  always  specified  in  the  contract. 
We  do  not  make  installations  at  per 
diem  rates.  The  Company  guaran- 
tees complete  and  practical  systems 
efficiently  installed  for  the  fee  stipu- 
lated. 

This  plan  safeguards  the  client  as 
well  as  the  standing  of  the  service. 
We  cannot,  by  slowing  up,  increase 
the  expense  of  installation,  nor  can 
the  client  through  a  mistaken  impres- 
sion, or  false  economy,  stop  the  in- 

101 


;       THE  r^^pr^.  OF  COST  ENGINEERING 

stailktion 'in  the  belief  that  his  par- 
tially trained  employes  can  complete 
the  service  alone.  Such  action  could 
only  result  in  failure  and  dissatisfac- 
tion detrimental  to  both. 

A  guaranteed  service  at  a  stipu- 
lated fee  is  the  only  practicable  plan 
for  this  type  of  service.  Experience 
has  proven  it  most  satisfactory  in 
the  seven  hundred  cases  which  we 
have  served. 

How  To  Get  Service 

Write  to  The  Denham  Costfinding 
Company,  Cleveland,  Ohio,  asking 
them  to  have  a  representative  call 
upon  you.  This  call  does  not  obligate 
you  to  engage  the  service  unless  you 
are  convinced  that  it  will  prove 
profitable. 

The  representative,  either  a  dis- 
trict manager  or  the  chief  engineer, 
will  visit  you,  look  over  your  factory, 
discuss    with    you    the    methods    of 

102 


THE  A-B-C  OF  COST  ENGINEERING 

doing  the  work,  explain  what  will  be 
required  on  your  part,  and  make  you 
a  quotation. 

Give  him  your  order.  The  service 
will  be  started  at  whatever  time  you 
wish  it,  unless  previous  orders  cause 
delay,  in  which  case  it  will  be  given 
its  turn. 

Character  of  Service 

Have  no  fear  as  to  the  character  of 
the  service.  The  men  we  employ  are 
high-class  engineers,  not  accountants 
or  bookkeepers.  They  are  men  of 
large  experience  in  factory  work  and 
specially  trained  in  Cost  Engineering. 
They  are  absolutely  trustworthy. 
Their  position  is  strictly  confidential. 
You  need  not  hesitate  to  discuss 
the  most  vital  conditions  in  your 
business  with  them. 

We  offer  every  facility  for  your 
convenience  in  investigating  the 
merit  of  this  service.  If  you  are  using 
a  cost  accounting  system,  a  home- 

103 


THE  A-B-C  OF  COST  ENGINEERING 

made  system,  or  have  none,  it  will 
pay  you  in  largely  increased  profits 
to  avail  yourself  of  this  offer. 

No  Financial  Obligation  Unless 
You  Order 

Remember,  we  will  send  a  repre- 
sentative to  any  point  within  the 
range  of  our  installing  organizations, 
upon  the  request  of  an  executive  of 
any  factory  employing  fifty  or  more 
people.  (In  certain  localities  we  can 
handle  smaller  cases.)  There  is  no 
obligation  involved,  except  to  give 
our  representative  a  prompt  hearing 
and  our  proposition  earnest  consider- 
ation.  Write  today. 

The  Denham  Costfinding  Co. 
Cleveland,  Ohio 


104 


The  Denham  Costfinding  Co., 
Cleveland,  Ohio 

Please  have  your  representative  call  on 
us  to  discuss  the  value  of  a  Cost  Engineer- 
ing System  in  connection  with  the  opera- 
tion of  our  business. 

This  request  involves  no  obligation 
except  to  give  him  an  interview  promptly 
and  to  seriously  consider  the  advantage  of 
your  proposition. 

Time  of  call  preferred 

Very  truly  yours. 


Official  Title 

Should  be  signed  by  General  Manager  or 
Corporation  officer. 


105 


COST  ENGINEERING  SERVICE 

•  The  Denham  Costfinding  Co.  of 
Cleveland,  Ohio,  provides  Cost 
Engineering  Service  for  the  plan- 
ning and  installation  of  Cost 
Engineering  Systems  in  Factories. 
Six  hundred  users  in  over  one 
hundred  cities  of  the  United  States 
and  Canada  attest  the  practica- 
bility and  profitableness  of  the 
service.  A  representative  will  be 
sent  on  request. 


THE  DENHAM  COSTFINDING  CO. 

COST  ENGINEERS 
SLOAN  BUILDING,  CLEVELAND 


BOOKS 

BY 

ROBERT  S.  DENHAM 
PRACTICAL  COST  ENGINEERING 

Covers  the  philosophy  of  Cost  Engineering 
with  detailed  exposition  of  the  application 
of  the  Principles  and  Rules  of  Cost  Engi- 
neering Practice.  A  book  for  the  manufac- 
turer or  student. 

Buckram,  300  pages^  $10.00  per  copy 

4f  ^  ^ 

FUNDAMENTALS  OF  COST  AND 
PROFIT  CALCULATION 

A  vigorous  discussion  of  the  vital  elements 
of  business.  A  book  every  man  engaged 
in  active  business  in  any  capacity  can  read 
with  interest  and  profit. 

Cloth,  120  pages,  $1.00  per  copy 

<»  /•  .K 

MANUAL  OF  COST  ENGINEERING 
AND  ESTIMATING 

For  Paper  Box  Manufacturers,  with 
Addenda  by  Joint  Cost  Committee  of  the 
National  Federation  of  Paper  Box  Manu- 
facturers' Associations. 

Publication  authorized  by  the  Federated  Paper  Box 
Manufacturers'  Ass'ns  of  United  States  and  Canada 

Buckram,  316  pages,  $10.00  per  copy 
COST  ENGINEER  PUBLISHING  CO. 

CLEVELAND,  O. 


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